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Taking the long view despite short term impact of Assessment
The reverse mortgage industry is relatively small compared to the traditional lending marketplace yet the recent financial assessment has changed our collective world.
It comes as no surprise that the financial assessment is a game-changer for the Home Equity Conversion Mortgage program. We saw a rush of applications prior to the April 27th deadline and the subsequent trailing endorsement volume reflected a push by lenders and borrowers to forgo the requirements of the assessment. Now that the pre-assessment rush is behind us we can begin to measure the true impact of the new financial guidelines as reflected in the recent top 100 HECM lenders report from Reverse Market Insight…
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Unlike prognosticators at either RMI or Reverse Vision, there has been no time since April 26, 2015 one can find from public information released by HUD where there is even a glimmer of hope of quick recovery as to endorsed HECMs subject to financial assessment.
As we all know case number assignment must occur before a HECM can be endorsed. Also we are still on a diminishing downward trend in the fiscal year end conversion rate. To appreciate the effect of the overall downward trend let us look at how many endorsements we produced for every 1,000 applications with case number assigned for the following fiscal years:
Fiscal
Year —– Endorsements
2004 —— 907
2005 —— 797
2006 —— 841
2007 —— 975
2008 —— 796
2009 —— 730
2010 —— 729
2011 —— 695
2012 —— 639
2013 —— 642
2014 —— 631
2015 —— 594
For the three months ended August 31, 2015, total case numbers assigned totaled about 18,640. We will see most of the endorsements coming out of this cohort during the three month period ended December 31, 2015 based on the four month industry rule of thumb rule..
Based on a conversion rate of about 60%, we should see about 11,200 endorsements in the last quarter of this calendar year. The industry has not experienced such a low endorsement total for that same three month period since December 31, 2004.
Also there is nothing yet showing that the kind words being spoken by more and more financial advisors about HECMs are materializing into endorsements. One place that would show up is in the conversion rate. Although anecdotal, generally referrals that turn into applications with case number assignment have a greater tendency to be endorsed than applications from non-referral sources. As of yet the conversion rate is still on an overall downward trend.